Megaupload says US trying to change rules to allow prosecution

Government is tacitly admitting it can't prosecute now, Megaupload says.

The shuttered file-sharing site Megaupload has accused the United States government of trying to change criminal court procedures to make it easier to prosecute the firm for copyright infringement. In addition to naming CEO Kim Dotcom as a defendant in the criminal case, the US government also named Megaupload, a corporation based in Hong Kong, as a separate defendant.

Megaupload has argued that US law doesn't allow criminal prosecution of corporations based entirely overseas. Federal rules require notice of an indictment to be sent to a corporation's last known US address. But Megaupload has never had a US address, the firm argues, so it can't be prosecuted.

Judge Liam O'Grady rejected that argument in October, reasoning that the government may be able to satisfy the notice requirement by serving papers on Kim Dotcom after he has been extradited to the United States.

On Thursday, Megaupload pressed its case again by pointing to a letter that Assistant Attorney General Lanny Breuer wrote to the chair of the Advisory Committee on the Criminal Rules, which is part of the judicial branch. The government's attempts to change the criminal rules are an implicit admission that Megaupload is actually correct on the law, the company argues.

"When the Federal Rules of Criminal Procedure entered into force in March 1946, organizations, including corporations, were rarely charged as defendants in and of themselves," Breuer wrote. "Organizations, such as domestic corporations, were established, conducted activities, and expectedly maintained a presence in the United States."

Today, in contrast, "the economy is global. Electronic communications continue to displace ordinary mail. Organizations can maintain no office or agent in the United States, yet conduct both real and virtual activities here. This new reality has affected federal criminal practice fundamentally."

Breuer argues that the rules should be updated to allow for an alternative process for serving notice on corporations that do not maintain a US address. A footnote mentions the Megaupload case as an example.

Megaupload argues that Breuer's letter basically concedes the Hong Kong company's argument. According to Megaupload, the letter "contradicts the Government’s repeated contention that it can validly serve Megaupload—a wholly foreign entity that has never had an office in the United States—without regard for Rule 4’s mailing requirement. To the contrary, the Government explicitly acknowledges in the letter that it has a “duty” under the current Rule to mail a copy of the summons to a corporate defendant’s last known address within the district or to its principal place of business elsewhere in the United States."

"By seeking to have the mailing requirement eliminated, the Government implicitly admits it cannot validly serve Megaupload consistent with Rule 4 as currently written," Megaupload claims.

The issue matters because the United States has frozen millions of dollars in assets belonging to Megaupload. The asset freeze is what completely shut Megaupload down, making it impossible for the company to pay its legal bills, hire employees, or run servers. (Although, it hasn't stopped founder Dotcom from raising money for a new company, launched at an over-the-top party at his New Zealand mansion.) Getting the case against Megaupload dropped wouldn't save Dotcom from extradition, but recovering company assets might cover some legal costs while Megaupload's founder and other officials fight their own court battles.

Timothy B. Lee
Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times. Emailtimothy.lee@arstechnica.com//Twitter@binarybits

I think that what the article says is that according to the letter of the law only a company with an USA address can be prosecuted. But the prosecutor says that because "globalization" any company that make business with USA citizens can be prosecuted.

Which mean that either they are changing the interpretation of the law in the favor of the prosecutor or they are doing something illegal.

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Will that work both ways? Will US companies be subject to the laws of other countries simply for doing online business there? Will WalMart be subject to Iranian law because someone in Baghdad bought something on walmart.com?

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Then the government should rework the law, not choose to ignore their own requirements as written "because we really want to bust this guy, but the way the law is actually written, we can't".

I think they're saying that MegaUpload did business in the US, and therefore is subject to US law. If they didn't do business in the US, and also weren't based here, they might not be.

This seems reasonable to me. The question then is whether MegaUpload did business in the US. Does purely online conduct become business in the US simply because users are in the US?

Anyone who does business online is conducting business in the US by how the DNS and internet routing is setup. The managing organizations are all based in the States. The whole issue is now semantics. This is a failure of the rule of law. They want to prosecute the guy they just don't know how yet.

If they do manage to change the law, will that new law be applicable in this case? Or will the case pre-date the law and not be affected by it (does it even work that way)? Would be funny if it was the latter or the two.

I think they're saying that MegaUpload did business in the US, and therefore is subject to US law. If they didn't do business in the US, and also weren't based here, they might not be.

This seems reasonable to me. The question then is whether MegaUpload did business in the US. Does purely online conduct become business in the US simply because users are in the US?

Anyone who does business online is conducting business in the US by how the DNS and internet routing is setup. The managing organizations are all based in the States. The whole issue is now semantics. This is a failure of the rule of law. They want to prosecute the guy they just don't know how yet.

The DNS root servers exist globally, and to get from Germany to England does not necessitate passing through the USA. It's entirely possible to never communicate with a US based host and conduct business.

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Will that work both ways? Will US companies be subject to the laws of other countries simply for doing online business there? Will WalMart be subject to Iranian law because someone in Baghdad bought something on walmart.com?

If Walmart if makes sales in Iran than it should be the case the no? Walmart should be responsible to Iranian law for the sales it makes in Iran. How else will a country be able to enforce its sovereign laws?

Is he actually trying to say that basically any company anywhere in the world is subject to US law?

Please tell me that I am completely crazy and that I have gravely misunderstood this article! Please?

He seems to be saying that any company that conducts business in the US is subject to US law, even if they have no physical presence here.

I'm ok with that.

If you sell weed in Amesterdam legally under their laws, but don't sell it here at all, US can't touch you. However, if you start trying to sell it here, even tho you have no physical presence, then we can touch you. Works for me.

(I used weed b/c it's the first thing that came to mind, so don't nit pick too hard.)

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Then the government should rework the law, not choose to ignore their own requirements as written "because we really want to bust this guy, but the way the law is actually written, we can't".

Ex Post Facto and all that.

Fair enough, I can get behind them, It seems from some of the comments that people are questioning the validity of changing the law itself. that I cannot agree with

If they do manage to change the law, will that new law be applicable in this case? Or will the case pre-date the law and not be affected by it (does it even work that way)? Would be funny if it was the latter or the two.

Is he actually trying to say that basically any company anywhere in the world is subject to US law?

Please tell me that I am completely crazy and that I have gravely misunderstood this article! Please?

He seems to be saying that any company that conducts business in the US is subject to US law, even if they have no physical presence here.

I'm ok with that.

If you sell weed in Amesterdam legally under their laws, but don't sell it here at all, US can't touch you. However, if you start trying to sell it here, even tho you have no physical presence, then we can touch you. Works for me.

(I used weed b/c it's the first thing that came to mind, so don't nit pick too hard.)

Of course if you are a US citizen selling in Amsterdam, you are still responsible to US laws. Every country is pretty much like that for their own rules.

If they do manage to change the law, will that new law be applicable in this case? Or will the case pre-date the law and not be affected by it (does it even work that way)? Would be funny if it was the latter or the two.

You can't be charged for doing something before it was made illegal.

It is already illegal, it's just a procedural matter with how the case is served to the entity in question, so I believe a law change COULD be applied.

Is he actually trying to say that basically any company anywhere in the world is subject to US law?

Please tell me that I am completely crazy and that I have gravely misunderstood this article! Please?

He seems to be saying that any company that conducts business in the US is subject to US law, even if they have no physical presence here.

I'm ok with that.

If you sell weed in Amesterdam legally under their laws, but don't sell it here at all, US can't touch you. However, if you start trying to sell it here, even tho you have no physical presence, then we can touch you. Works for me.

(I used weed b/c it's the first thing that came to mind, so don't nit pick too hard.)

Alternately, it could be said that Americans were doing business with a foreign company based in Hong Kong. It happened that the company that hosts MegaUpload's data has servers located int he US, probably to reduce demand and fees it would face moving traffic elsewhere.

The DOJ needs to admit that it frigged up and let it go. Additionally, it needs to release Mega's funds and allow people to get their data off.

Will that work both ways? Will US companies be subject to the laws of other countries simply for doing online business there? Will WalMart be subject to Iranian law because someone in Baghdad bought something on walmart.com?

Will that work both ways? Will US companies be subject to the laws of other countries simply for doing online business there? Will WalMart be subject to Iranian law because someone in Baghdad bought something on walmart.com?

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Back in the day there were plenty of mail-order and catalog stores which did all international dealings through the standard post.

E-Mail and Webpages may be more efficient than postal service and catalog books, but they accomplish the same fundamental tasks.

They conducted business with US Citizens so were subject to American law, their servers were hosted in the US, so they are subject to American Law....

So a U.S. tourist came to my country and chose to do business with me. As a result, I am to be relegated to a foreign nations laws? As I am not a Lawyer I am only familiar with the cursory laws I need to know in order to run my business. Not the laws of 140+ other nations that my customers may travel in from.

Yes, servers were rented all of the world for MegaUpload, were some in the U.S.? Probably, they were rented, managed by a third party company, housed in a third-party data-center. Same as the catalog store I mentioned earlier that certainly did exist in 1946 when the relevant laws were written likely rented space from some warehousing and logistics company because it saves money to send items in bulk as opposed to one by one.

The fundamentals of the business practice haven't changed. There's a commodity, a delivery process, and possibly, probably, some intermediary waystations, but the company itself is not "American", and it is up to the "American" companies that deal with the content provider to ensure they are not shipping illegal contraband, and it is the "American" logistics company that would be in trouble for moving the illegal product if this were a physical world example.

Will that work both ways? Will US companies be subject to the laws of other countries simply for doing online business there? Will WalMart be subject to Iranian law because someone in Baghdad bought something on walmart.com?

Is the joke that Baghdad is in Iraq, not Iran?

My mistake, but the point stands.

Blasphemy law would be especially interesting international law if everyone posting on internet that can be read by someone in a religious state.

I think they're saying that MegaUpload did business in the US, and therefore is subject to US law. If they didn't do business in the US, and also weren't based here, they might not be.

This seems reasonable to me. The question then is whether MegaUpload did business in the US. Does purely online conduct become business in the US simply because users are in the US?

Anyone who does business online is conducting business in the US by how the DNS and internet routing is setup. The managing organizations are all based in the States. The whole issue is now semantics. This is a failure of the rule of law. They want to prosecute the guy they just don't know how yet.

The DNS root servers exist globally, and to get from Germany to England does not necessitate passing through the USA. It's entirely possible to never communicate with a US based host and conduct business.

I'd like to pose a question related to the points raised.

Suppose you are a resident of Florida. The item you are purchasing is in Washington state. The item in question is illegal in some states that lie between you and the goods. For you to receive the goods they will need travel across those states where the item is considered illegal.

Is he actually trying to say that basically any company anywhere in the world is subject to US law?

Please tell me that I am completely crazy and that I have gravely misunderstood this article! Please?

He seems to be saying that any company that conducts business in the US is subject to US law, even if they have no physical presence here.

I'm ok with that.

If you sell weed in Amesterdam legally under their laws, but don't sell it here at all, US can't touch you. However, if you start trying to sell it here, even tho you have no physical presence, then we can touch you. Works for me.

(I used weed b/c it's the first thing that came to mind, so don't nit pick too hard.)

Good luck having the US trying to get the Netherlands to extradite you. In Canada however the current government bends over to take it whenever the US asks, they will, see

So he did something illegal, the government can't legally do anything about it so they'll change the law to make it legal for them to charge him for his crimes. Wasn't there a restriction in the Constitution against this? Creating or altering laws at the whim of the government without a legal process? And then not allowed to be retroactively applied?

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Sure it was. Just because international post and shipments took days or weeks in the past didn't mean that a foreign company couldn't do business with those in the US. Sorry, the argument just simply doesn't hold water.

I agree with a previous poster that this would imply that any US company doing business with a person in another country should then be subject to the laws of that other Country for extradition or criminal prosecution. See how well executives of US companies would like the idea of being extradited to Russia or Iran.

Can the U.S. government please stop embarrassing itself. It is quite obvious just how desperate they have become and it sickens me that it has gotten to this point. U.S. government wants to set the precedent, make a stand, and make it clear that if one tries what Dotcom did, they will will pay the consequences.

I am not a fan of Dotcom, I think he is full of himself and ego as big as his mansion. But even with that, the U.S. government has shamefully acted in such a manner to where I now support Dotcom. Hell, even New Zealand is probably getting annoyed with the strong-arming by the U.S.

So he did something illegal, the government can't legally do anything about it so they'll change the law to make it legal for them to charge him for his crimes. Wasn't there a restriction in the Constitution against this? Creating or altering laws at the whim of the government?

You are thinking of ex post facto laws. They are forbidden by Article 1, Section 9, Clause 3 of the US Constitution.

However, courts have ruled in many cases that ex post facto laws are legal ( e.g. controversially, the Domestic Violence Offender Gun Ban which allows individuals to be sent to jail for posessing fire arms acquired legally previous to the passage of the law ).

I think there is good reasoning behind what Breuer is saying. The rule was written in 1946 and made sense at the time. I don't think it was possible to conduct business in the USA without having a physical presence here. This is no longer the case, so we need to rework the law to take that into account. Seems entirely reasonable to me.

Even if they do re-write the law, I do nt believe the changes will affect KDC, as his arrest and attempted prosecution happened *before* the change. IANAL, but I'm pretty sure that new laws and changes to existing laws are not retroactive.

Of course if you are a US citizen selling in Amsterdam, you are still responsible to US laws. Every country is pretty much like that for their own rules.

To my knowledge, that varies from country to country. In some countries the laws only apply within their borders. In some within borders with one or two exceptions. And with some all the laws apply to country's citizens everywhere.

For example in my country I couldn't be prosecuted if I sold weed outside of my country's borders.

To me, where country's laws apply to the citizens where ever they are, sound less humane. It gives the impression that the state owns it's citizens when in the opposite the state is for the citizens.

I think they're saying that MegaUpload did business in the US, and therefore is subject to US law. If they didn't do business in the US, and also weren't based here, they might not be.

This seems reasonable to me. The question then is whether MegaUpload did business in the US. Does purely online conduct become business in the US simply because users are in the US?

Anyone who does business online is conducting business in the US by how the DNS and internet routing is setup. The managing organizations are all based in the States. The whole issue is now semantics. This is a failure of the rule of law. They want to prosecute the guy they just don't know how yet.

The DNS root servers exist globally, and to get from Germany to England does not necessitate passing through the USA. It's entirely possible to never communicate with a US based host and conduct business.

I'd like to pose a question related to the points raised.

Suppose you are a resident of Florida. The item you are purchasing is in Washington state. The item in question is illegal in some states that lie between you and the goods. For you to receive the goods they will need travel across those states where the item is considered illegal.

Is anyone in that theoretical question committing a crime?

I think it would depend on Federal laws, since the Feds get jurisdiction for sales/items that cross state lines? A lawyer would known, but do the right kind of lawyers read ars? Doubtful.